Contents:

In oil markets, the crack spread refers to the crude-product price relationship. Refiners are major participants in oil markets and they are primarily exposed to the crack spread. In other words, refiner activity is substantially driven by the objective of protecting the crack spread. Moreover, oil consumers are active participants in the oil hedging market and they are frequently exposed to the crack spread. From another perspective, hedge funds are heavily using crack spread to speculate in oil markets. Based on the high volume of crack spread futures trading in oil markets, the question we want to raise is whether the crack spread futures can be a good predictor of oil price movements. We investigated first whether there is a causal relationship between the crack spread futures and the spot oil markets in a vector error correction framework. We found the causal impact of crack spread futures on spot oil market both in the long- and the short-run after April 2003 where we detected a structural break in the model. To examine the forecasting performance, we use the random walk model (RWM) as a benchmark, and we also evaluate the forecasting power of crack spread futures against the crude oil futures. The results showed that (a) both the crack spread futures and the crude oil futures outperformed the RWM; and (b) the crack spread futures are almost as good as the crude oil futures in predicting the movements in spot oil markets.

If you experience problems downloading a file, check if you have the
proper application to
view it first. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.

File URL: http://www.sciencedirect.com/science/article/pii/S0140-9883(08)00109-6Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

When requesting a correction, please mention this item's handle: RePEc:eee:eneeco:v:31:y:2009:i:1:p:85-90. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through
the various RePEc services.